The offshore investment market has shown stellar growth in the UK, according to a recent survey by D...
The offshore investment market has shown stellar growth in the UK, according to a recent survey by Defaqto. With growth of 60% and 50% in the last two years respectively, taking sales to over £7bn, the market has never been so buoyant. It is likely to see continued high growth, but only if more financial advisers tune into it - currently only about one in four are active in the offshore market, and those who are tend to be advising clients in one or more of three main markets: open-architecture investment, inheritance tax (IHT) planning and emigration.
The widest range
Open architecture investment has been increasing in all product areas, not just offshore bonds, as advisers seek to offer the widest range of funds. In the last few years, there has been an increase in the number of financial advisers seeking to pass over their clients' investment management to third party specialist asset managers. By working with third party asset managers, financial advisers are able to avoid liability for investment advice while retaining the client relationship.
IHT planning has long been an area in which offshore providers have specialised and, with increasing personal wealth, the market for packaged IHT schemes has grown. Even the 2006 Finance Act has had little impact, if any, on product sales. The changes impacted trust plans that offered IHT mitigation and flexibility and added a layer of complexity in the advisory process as a consequence. While there was a temporary lull in the sales of discounted gift trusts, the providers were quick to amend their products and support services which led to a full recovery of sales volumes.
The IHT net
One thing the 2006 Finance Act did was increase public awareness of IHT and its impact on the average person. With HM Revenue & Customs predictions that as many as 380,000 estates in the UK will be liable for IHT in 2007/2008, more people are falling into the net. This ever-expanding market offers real opportunities for providers and financial advisers to provide tailored solutions.
A national newspaper recently reported the record number of people leaving the UK this year - just under 200,000 who are moving to Australia, Spain, France and elsewhere. A couple of years ago, a financial services company conducted research which identified 40% of over-55s wanted to retire abroad. This is an area often overlooked by advisers since very few fact-find interviews examine where a client might reside in the future. With more people taking advantage of cheap travel opportunities, the decision to move abroad is becoming easier to make; gone are the days when leaving the country meant never or rarely seeing your family and loved ones again. Offshore products can play a very important part of a client's financial planning when leaving the UK, especially when some of them will return, disillusioned.
Interestingly, all three markets look set to continue to grow. The increased sophistication of an increasingly wealthy client base will lead inexorably to demands for more open-architecture investment products. Asset management houses are actively recruiting from the broker consultant world to generate greater volumes of investments through financial advisers. The IHT planning market will expand as house prices and personal wealth increase. Migration abroad will likely gather momentum as cheap airlines expand their services and more people seek to buy real estate in warmer climes. With only one in four financial adviser firms currently advising clients on the benefits of offshore products, there is enormous scope for the market to increase.
Richard Leeson is head of UK development at Prudential International
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